Finance Minister Tonio Fenech in a statement to Parliament today said that Malta is insisting that EU financial aid for the recapitalisation of the banking system in Spain should be channelled through the European Stability Mechanism (ESM).

In this way, he said, Malta would not be required to lend directly to Spain, as it had done  for the first Greek bailout. It would also not affect Malta's debt, as would be the case if the EU opts to use the European Financial Stability Fund (EFSF) some of whose lending was guaranteed by Malta.

He also said that Maltese banks exposure in Spain amounted to some €160 million, mostly related to international banks.

Mr Fenech warned that a collapse of Spanish banks would have an impact throughout the eurozone and it was important that this was presented.

Opposition finance spokesman Karmenu Vella asked if the government had set a cap of how much Malta could (as against wished ) to lend other countries. Furthermore what was the position with regard to the funds lent to Greece? Did the Finance Minister still view that as investment, as he had once declared?

He asked what was the position in Cyprus and also asked whether the bailouts were really helping the countries they were meant to help, or the creditor banks in Germany and France.

Alfred Sant (PL) asked whether proper use was being made of the mechanisms to monitor the banks. How had this crisis cropped up in Spanish banks after so much fanfare about the stress tests which the banks had been subjected to? Frankly this issue stank and the European ministers seemed to be in panic. He asked if Malta's contribution, through direct issue and guarantees to Spain, would be between €73m and €100 million, probably closer to the latter? What would the opportunity costs be?  It appeared that Malta would pay relatively high interest to borrow in order to meet its obligations, but then the ESM would transfer the funds to Spain at low interest. Was this feasible?

What was the exposure of the Maltese banks to Spain including banks involved in overseas business?

Replying, Mr Fenech said Malta would not issue any new funds other than what were already committed to the EFSF and the ESM.

Malta's contribution to the ESM was a total credit line of €50m over three years. For the EFSF Malta had committed guarantees of €700m. As the ESM came into force, the EFSF guarantees would be dropped except for the guarantees to Portugal and Ireland, where Malta's guarantees were €60m.

Mr Fenech insisted he never declared that lending to Greece was an investment, but that it included an interest coupon. Since then, matters had changed to a situation where the creditor governments would not make any losses.

The minister said state aid rules would apply to the recapitalisation of the Spanish banks. The recapitalisation would be made through shares which would be held by the Spanish government.

Mr Fenech said the Spanish banks had not done well in the stress tests but the situation for them got worse since then as the property market slumped.

Should the EFSF facility be used for the full €100 billion required by Spain, Malta's guarantees would be of €97 million (from the total commitment of €700m) which would be temporary until the ESM took over.

As for the exposure of Malta's banks to Spain, Mr Fenech said figures given by Nomura Bank were wrong. Exposure was of some €160 million, which was considered low and consisted mostlyof  lending and liabilities by the international banks.

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